The media organisation exactly where Rajesh Kumar (name changed) has been working for the final 12 years is in deep monetary problems, resulting in delay in salary payments by 11 months. The delay in salary payments had began in the year 2017, initially by some days, then a month and now has gone up to just about a year.
“We are yet to get the salary of January 2020 and don’t know if full salary will be paid or half,” stated Rajesh.
“We have not got the Form 16 of Assessment Year (AY) 2020-21 (Financial Year 2019-20) yet, but have got salary slips of all the months,” he added.
The enterprise has acted cleverly and with out paying salary, it has issued all the salary slips till date just after deducting PF (Provident Fund) contributions, qualified tax and revenue tax, exactly where applicable.
Now Rajest wonders, if he has to show even the element of salary which he has not got but in his Income Tax Return (ITR) for AY 2020-21 on the basis of salary slips, as the due date of filing return will finish on December 31, 2020, if not extended additional.
Income Tax Return: Problems in ITR excel utilities mar date extension relief
The Form 16 of AY 2019-20 (FY 2018-19) reveals that the tax was calculated on a due basis as it includes salary beginning from the month of April 2018 to March 2019, which was payable in April 2019.
So, he has to show the whole salary of FY 2019-20 in his ITR of AY 2020-21 even although he has not got it all.
On the other hand, Sanju Kumar (name changed), who functions as a teacher in a government college in UP, finds that the employer’s contributions of 14 per cent of the salary have not been deposited in his NPS (National Pension System) account, whilst the employee’s contribution has been deducted from his salary.
As the employer’s contribution to NPS more than 10 % of salary is taxable for state government personnel, Sanju wonders if he has to involve the taxable element of the contribution in his ITR or not.
The Form 16 of Sanju reveals that the tax is calculated on salary beginning from the month of March 2019, which he has received in April 2019, to February 2020, which he has received in March 2020.
As the tax is calculated and revealed in the Form 16 of Sanju is on receipt basis, he is supposed to involve only that element of the earnings, which he has truly received.
So, if any element of his salary and/or allowance is not received, Sanju is not supposed to involve it in his ITR.
However, the employer’s contribution to NPS is not paid to an employee straight, but is deposited to the NPS account of the employee. Moreover, the contribution is element of the salary package and cannot be accounted for separately.
So, as soon as the salary is truly received, the employer’s contribution to NPS is also treated as received, even if it is not deposited into the NPS account. Hence, it has to be integrated in ITR irrespective of the truth that it is truly received or is due.
“Salary is taxable on a due basis or receipt basis, whichever is earlier in accordance with the charging section 15 of the Income Tax Act. Any contribution by the employer to the employee’s pension account forms a part of salary in the hands of the employee. If the employer’s contribution to NPS (i.e. over the tax free contribution of 10 per cent) is as per the compensation plan (i.e. employment terms) agreed between the employer and employee, then in such cases, even if the NPS is not deposited, it shall form part of salary on due basis,” stated Dr. Suresh Surana, Founder, RSM India.